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Pharmaceutical Industry Is Biggest Defrauder of the Federal Government under the False Claims Act, New Public Citizen Study Finds

December 2010

The drug industry has now become the biggest defrauder of the federal government, as determined by payments it has made for violations of the False Claims Act (FCA), surpassing the defense industry, which had long been the leader, according to a new Public Citizen study.

The study found that pharmaceutical cases accounted for at least 25 percent of all federal FCA payouts over the past decade, compared with 11 percent by the defense industry.

The fraud results were a key finding from a Public Citizen analysis of all major pharmaceutical company civil and criminal settlements on the state and federal levels since 1991 and found that the frequency with which the pharmaceutical industry has allegedly violated federal and state laws has increased at an alarming rate. Of the 165 pharmaceutical industry settlements comprising $19.8 billion in penalties during the past 20 years, 73 percent of the settlements (121) and 75 percent of the dollar amount ($14.8 billion) have occurred during the past five years. (See Table)

Many of the infractions, and the single largest category of financial penalties, stemmed from the practice of off-label promotion of pharmaceuticals - the illegal promotion of a drug for uses not approved by the Food and Drug Administration (FDA). Off-label promotion can be prosecuted as a criminal offense because of the potential for serious adverse health consequences to patients from such promotional activities. Another major category of federal financial penalties was purposely overcharging for drugs under various federal programs, which constitutes a violation of the FCA.

On the state level, the largest category of financial penalties has come from companies deliberately overcharging state health programs, such as Medicaid. Public Citizen’s study found this to be the most common category of violation among state settlements.

The increase in payments for fraud is likely attributable to drug companies engaging in more wrongdoing and better enforcement at the state and federal level, said Dr. Sidney Wolfe, director of the Health Research Group at Public Citizen.

“Desperate to maintain their high margin of profit in the face of a dwindling number of important new drugs, these figures show that the industry has engaged in such activities as dangerous, illegal promotion for unapproved uses of drugs and deliberately overcharging vital government health programs, such as Medicare and Medicaid,” said Wolfe. Wolfe compiled and analyzed the data with physicians from the Johns Hopkins General Preventive Medicine program, Drs. Sammy Almashat and Charles Preston, as well as Columbia University public health student Timothy Waterman, all of whom worked at Public Citizen.

Public Citizen’s study also found that more than one-half of the industry’s fines were paid by just a few companies - GlaxoSmithKline, Pfizer, Eli Lilly and Schering-Plough. These four companies accounted for more than half of all financial penalties over the past two decades, paying $10.5 billion in fines collectively. These pharmaceutical companies were among the largest in the world. The two largest criminal penalties ever assessed by the U.S. government against any companies were against Lilly ($515 million) and Pfizer ($1.2 billion), both in 2009.

To conduct the study, Public Citizen created a database of information about pharmaceutical companies’ civil and criminal settlements, including information about the type of alleged violation and the amount of money paid in settlements. This study is the first to attempt to document and analyze all major pharmaceutical company settlements with both federal and state governments, the authors said.

Nationally, former pharmaceutical company employees and other whistleblowers have been instrumental in bringing to light the most egregious violations; they have initiated the largest number of federal settlements in the past decade. The number of federal settlements arising from whistleblower cases has more than doubled over the past five years, yielding total payouts more than two and a half times higher than in the previous 15 years combined.